The IRS uses the substantial presence test (SPT) to determine U.S. tax residency. A foreign national who satisfies the substantial presence test is taxed as a resident alien. The test is run after adding visa and immigration status records for an individual, and after making any changes to the individual's immigration status, days away from the United States, or other corrections to existing information.
Essentially, the SPT is an IRS formula used to determine if a person has been in the United States long enough to be taxed as a resident alien.
The formula is a total of 183 days to be considered a U.S. resident for tax purposes only:
- Must be in United States for 31 days during the current year
- 183 days during the three-year period that includes the current year and the two years immediately before that, counting:
- All the days you were present in the current year, and
- 1/3 of the days you were present in the 1st year before the current year, and
- 1/6 of the days you were present in the 2nd year before the current year
Accounts Payable Payments
Resident aliens, like U.S. citizens, are not taxed upfront. They receive a 1099 at the end of the year (i.e. they meet the SPT of 183 days).
Nonresident aliens are taxed upfront, unless a tax treaty applies (i.e. they do not meet the SPT of 183 days).
SPT Considerations
A foreign visitor is treated as present in the United States on any day physically present in the country, at any time during the day.
Transit exception to the SPT: Do not count days when in the United States for less than 24 hours when in transit between two places outside the United States.
Visa exceptions from the SPT:
- A teacher or trainee temporarily present in the United States under a J or Q visa, who substantially complies with the requirements of the visa
- A student temporarily present in the United States under an F, J, M, or Q visa, who substantially complies with the requirements of the visa
Closer Connection Exception to the SPT:
- Are present in the United States for less than 183 days during the year
- Maintain a tax home in a foreign country during the year
- Have a closer connection during the year to one foreign country in which you have a tax home than to the United States. For determining whether a foreign visitor has a closer connection to a foreign country, the tax home must also be in existence for the entire current year, and must be located in the same foreign country for which the visitor is claiming to have a closer connection.
- Establishing A Closer Connection
- The country of residence designated on forms and documents
- The types of official forms filed (Form W-9, W-8BEN or W-8ECI)
- The location of: permanent home; family; personal belongings; current social, political, cultural, or religious affiliations; business activities (other than those that constitute the tax home); jurisdiction in which a driver's license is held; voter jurisdiction
- To claim the closer connection exception file Form 8840 (Closer Connection Exception Statement for Aliens)
Closer Connection Exception for Students:
Even though a foreign student may pass the substantial presence test, an exception exists in U.S. law that would allow the foreign student to continue to be treated as a nonresident alien.
Most students fail the closer connection test (because they are in the United States for more than 183 days, and their tax home is not located outside of the United States)
The exception set forth in I.R.C. § 7701(b)(5)(D) and (E) and in Treas. Reg. § 01.7701(b)-3(b)(7)(iii) is available only to alien students (not teachers / researchers, etc.), and contains four requirements for its application:
- Does not intend to reside permanently in the United States;
- Has substantially complied with the immigration laws and requirements relating to his student nonimmigrant status;
- Has not taken any steps to change his nonimmigrant status in the United States toward becoming a permanent resident of the United States; and
- Has a closer connection to a foreign country than to the United States
To claim the exception, attach Form 8843 to Form 1040NR-EZ along with an attachment explaining the students eligibility for the closer connection exception. An IRS response should be presented to the Payroll Office.
Contact Us
Payroll & International Taxation
Maryland Hall, Room G-24
804-289-8170
payroll@richmond.edu
I'm an expert in international taxation and U.S. tax residency criteria, particularly regarding the Internal Revenue Service's (IRS) substantial presence test (SPT) used to determine tax obligations for foreign nationals in the United States. My expertise is grounded in practical application, understanding tax laws, and assisting individuals and organizations with tax compliance matters.
The IRS employs the substantial presence test to assess whether a foreign national should be taxed as a U.S. resident alien. This test considers an individual's physical presence in the United States over a specific period. Meeting the substantial presence test generally entails being in the U.S. for at least 31 days during the current year and a total of 183 days during a three-year period, incorporating the current year and the two preceding years.
To calculate the days toward the substantial presence test, one includes all days physically present in the current year, along with a fraction of days from the prior two years. This involves considering 1/3 of the days from the first year before the current year and 1/6 of the days from the second year before the current year.
Resident aliens, akin to U.S. citizens, are not taxed upfront but receive a 1099 form at year-end if they meet the SPT criteria. Conversely, nonresident aliens are typically taxed upfront, except if a tax treaty applies or if they do not meet the substantial presence test.
Several considerations and exceptions apply to the substantial presence test, such as:
- Physical presence within the United States counts toward the SPT.
- Days spent in transit for less than 24 hours between two destinations outside the U.S. are not counted.
- Certain visa holders (J, Q, F, J, M) may have exceptions based on compliance with visa requirements.
- The closer connection exception allows individuals to claim non-residency status if they meet specific criteria, including maintaining a tax home in a foreign country and demonstrating closer ties to that country than to the U.S.
Establishing a closer connection involves multiple factors, including the country designated as residence on official forms, the location of permanent home, family, personal belongings, social affiliations, business activities, and more.
Students, even if they pass the substantial presence test, can claim an exception to continue being treated as nonresident aliens if they satisfy certain requirements, such as not intending to permanently reside in the U.S., complying with immigration laws, and having a closer connection to a foreign country.
To claim exceptions or closeness to a foreign country, specific IRS forms like Form 8840 or Form 8843 need to be filed along with relevant attachments and explanations.
For detailed inquiries or assistance related to payroll and international taxation concerning the substantial presence test or tax residency, individuals can reach out to the Payroll & International Taxation office at Maryland Hall, Room G-24, or contact them via phone at 804-289-8170 or email at payroll@richmond.edu.
Understanding these tax residency concepts and navigating the intricacies of IRS guidelines is crucial for individuals, especially foreign nationals, to ensure compliance with U.S. tax laws.
